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15 Cards in this Set
- Front
- Back
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Static Risk |
result from factors other than a change in the economy - occur with regularity and can be insured against Earthquakes Floods Death |
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Dynamic Risk |
1. result of changes in the economy – Insurance does not typically cover dynamicrisks.· changes in business cycles· inflation |
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Fundamental Risk |
1. risks that affect a large group of people. |
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Particular Risk |
1. affect individuals or small groups of people. |
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Pure Risk |
1. involves only the chance of loss or no loss (nochance of gain)· Ex: home burning - there is no chance of gainbut only the chance of loss or no loss.· Pure risks are insurable |
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Speculative Risk |
1. risk that involves both the chance of loss andthe chance of gain· Ex: Gambling· Speculative risks are not insurable |
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Indemnity |
1. the policy owner will be reimbursed by theinsurer only up to the actual loss amount and cannot make a profit. Exception to this rule is a life insurance |
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Insurable interest |
1. relationship in which the person applying forthe insurance will incur a loss (financial and/or emotional) from thedestruction, damage, or death of the insured subject. · Property& casualty insurance - insurable interest must exist both when thepolicy is written and when loss is claimed · Lifeinsurance - insurable interest only needs to exist when the policy iswritten. |
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General characteristics of insurance contract |
1. offer and acceptance 2. consideration 3. legal purpose 4. signatories that possess legal capacity |
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Noninsurance transfer |
Shift it to someone else, other than aninsurance company. Example: Hold-harmless agreement in alease, whereby the tenant accepts all responsibility for injuriesoccurring on the rented premises. |
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Risk ManagementTechniques |
Avoidance Retention Noninsurance transfer Reduction Insurance (transfer |
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Insurance (transfer) characteristics: |
1. Pure risk (loss or no loss) 2. Frequency and severity of loss are calculable 3. Definite and measurable losses 4. Large number of exposure units 5. Losses are accidental 6. No potential catastrophe 7. Avoid adverse selection |
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adverse selection |
tendency for those who are most susceptible to loss to be the one most interested in obtaining insurance (Moral Hazard - underwriters deny preexisting medical conditions out of the pool of otherwise healthy and less risky individuals who are insured) |
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3 types of Hazards |
physical hazard moral hazard morale hazard |
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Conditional receipt |
When life insurance is sold, the agent can take a check for the first premiumand issue a conditional receipt provides temporary coverage but does not constitutethe insurance company' s acceptance of the application |
